G.R. No. L-58469 May 16, 1983 MAKATI LEASING and FINANCE CORPORATION, petitioner, vs. WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents. Loreto C. Baduan for petitioner. Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner. Jose V. Mancella for respondent. DE CASTRO, J.: Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27, 1981 in CA- G.R. No. SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion for reconsideration. It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range. Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court. Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however subsequently restrained upon private respondent's filing of a motion for reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order lifting the restraining order for the
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G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner, vs.WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however subsequently restrained upon private respondent's filing of a motion for reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new Civil Code, the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that the machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the case to this Court for review by writ of certiorari. It is contended by private respondent, however, that the instant petition was rendered moot and academic by petitioner's act of returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by respondent's representative. 1 Considering that petitioner has reserved its right to question the propriety of the Court of Appeals' decision, the contention of private respondent that this petition has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a personality, while the respondent claiming the contrary, and was sustained by the appellate court, which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants merely had a temporary right as lessee, and although this can not in itself alone determine the status of the property, it does so when combined with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate court did, the present case from the application of the abovequoted pronouncement. If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law makes no distinction with respect to the ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention and impresses upon the property the character determined by the parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property, as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the status of the subject machinery as movable or immovable was never placed in issue before the lower court and the Court of Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by respondent, the latter has indubitably benefited from said contract. Equity dictates that one should not benefit at the expense of another. Private respondent could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the nature of the machinery and equipment involved therein as real properties never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private respondent.
G.R. No. L-13194 January 29, 1960
BUENAVENTURA T. SALDANA, plaintiff-appellant, vs.PHILIPPINE GUARANTY COMPANY, INC., et al., defendants-appellees.
Gatchalian & Padilla for appellant.Emiliano Tabasondra for appellee Company.Teodoro Padilla for the other appellees.
REYES, J.B.L., J.:
This case arose from a complaint for damages filed by Buenaventura Saldana (docketed as Civil Case No. 32703 of the Court of First Instance of Manila) that was dismissed by order of the Court dated August 20, 1957, for lack of sufficient cause of action. In another order of September 30, 1957 of the same court, plaintiff's motion for reconsideration was denied, and the case was appealed to this Court.
The facts are that on May 8, 1953, in order to secure an indebtedness of P15,000.00, Josefina Vda. de Aleazar executed in favor of the plaintiff-appellant Buenaventura Saldana a chattel mortgage covering properties described as follows:
A building of strong materials, used for restaurant business, located in front of the San Juan de Dios Hospital at Dewey Boulevard, Pasay City, and the following personal properties therein contained:
1 Radio, Zenith, cabinet type.
1 Cooler.
1 Electric range, stateside, 4 burners.
1 Frigidaire, 8 cubic feet.
1 G.E. Deepfreezer.
8 Tables, stateside.
32 Chromium chairs, stateside.
1 Sala set upholstered, 6 pieces.
1 Bedroom set, 6 pieces.
And all other furniture's, fixtures or equipment found in the said premises.
Subsequent to the execution of said mortgage and while the same was still in force, the defendant Hospital de San Juan de Dios, Inc. obtained, in Civil Case No. 1930 of the Municipal Court of Pasay City, a judgment was duly Josewfina Vda. de Eleazar. A writ of execution was duly issued and, on January 28, 1957, the same was served on the judgment debtor by the sheriff of Pasay City; whereupon the following properties of Josefina Eleazar were levied upon:
8 Tables with 4 (upholstered) chairs each.
1 Table with 4 (wooden) chairs.
1 Table (large) with 5 chairs.
1 Radio-phono (Zenith, 8 tubes).
2 Showcases (big, with mirrors).
1 Rattan sala set with 4 chairs, 1 table and 3 sidetables .
1 Wooden drawer.
1 Tocador (brown with mirror).
1 Aparador .
2 Beds (single type).
1 Freezer (deep freeze).
1 Gas range (magic chef, with 4 burners).
1 Freezer (G.E.).
On January 31, 1957, the plaintiff-appellant Saldana filed a third-party claim asserting that the above-described properties levied are subject to his chattel mortgage of May 8, 1953. In virtue thereof, the sheriff released only some of the property originally included in the levy of January 28, 1957, to wit:
1 Radio, Zenith, cabinet type.
8 Tables, stateside.
32 Chromiun chairs, stateside.
1 G.E. Deep freezer.
To proceed with the execution sale of the rest of the properties still under levy, the defendants-appellees Hospital de San Juan de Dios, Inc. and the Philippine Guaranty Co., Inc., executed an indemnity bond to answer for any damages that plaintiff might suffer. Accordingly, on February 13, 1957, the said properties were sold to the defendant hospital as the highest bidder, for P1,500.00.
Appellants claims that the phrase in the chattel mortgage contract — "and all other furnitures, fixtures and equipment found in the said premises", validly and sufficiently covered within its terms the personal properties disposed of in the auction sale, as to warrant an action for damages by the plaintiff mortgagee.
There is merit in appellant's contention. Section 7 of Act No. 1508, commonly and better known as the Chattel Mortgage Law, does not demand a minute and specific description of every chattel mortgaged in the deal of mortgage but only requires that the description of the properties be such "as to enable the parties in the mortgage, or any other person, after reasonable inquiry and investigation to identify the same". Gauged by this standard, general description have been held by this Court. (See Stockholder vs. Ramirez, 44 Phil., 993; Pedro de Jesus vs. Guam Bee Co., Inc., 72 Phil., 464).
A similar rule obtains in the United States courts and decisions there have repeatedly upheld clauses of general import in mortgages of chattels other than goods for trade, and containing expressions similar to that of the contract now before us. Thus, "and all other stones belonging to me and all other goods and chattels" (Russel vs. Winne, 97 Am. Dec. 755); "all of the property of the said W.W. Allen used or situated upon the leased premises" (Dorman vs. Crooks State Bank, 64 A.L.R. 614); "all goods in the store where they are doing business in E. City, N.C." (Davis vs. Turner, 120 Fed. 605); "all and singular the goods, wares, stock, iron tools manufactured articles and property of every description, being situated in or about the shop or building now occupied by me in Howley Stree" (Winslow vs. Merchants Ins. Co., 38 Am. Dec. 368,) were held sufficient description, on the theory that parol evidence could supplement it to render identification rule is expressed in Walker vs. Johnson (Mont.) 1254 A.L.R. 937:
The courts and textbook writers have developed several rules for determination of the sufficiency of the description in a chattel mortgage. The rules are general in nature and are different where the controversy is between the parties to the mortgage from the situation where third parties with out actual notice come in. In 11 C.J. 457, it is said: "Ad against third persons the description in the mortgage must point out its subject matter so that such person may identify the chattels observed, but it is not essential that the description be so specific that the property may be identified by it alone, if such description or means of identification which, if pursued will disclose the property conveyed." In 5 R.C.L. 423 the rule is stated that a description which will enable a third person, aided by inquires which the instrument itself suggest to identify the property is sufficiently definite." In 1 Jones on Chattel Mortgages and Conditional Sales, Bowers Edition, at page 95 the writer says: "As to them (third persons), the description is sufficient if it points to evidence whereby the precise thing mortgaged may be ascertained with certainty." Here there is nothing in the description "873 head of sheep" from which anyone, the mortgagee or third persons, could ascertain with any certainty what chattels were covered by the mortgage.
In many instances the courts have held the description good where, though otherwise faulty, the mortgage explicity states that the property is in the possession of the mortgagor, and especially where it is the only property of that kind owned by him.
The specifications in the chattel mortgage contract in the instant case, we believe, in substantial compliance with the "reasonable description rule" fixed by the chattel Mortgage Act. We may notice in the agreement, moreover, that the phrase in question is found after an enumeration of other specific articles. It can thus be reasonably inferred therefrom that the "furnitures, fixture and equipment" referred to are properties of like nature, similarly situated or similarly used in the restaurant of the mortgagor located in front of the San Juan de Dos Hospital at Dewey Boulevard, Pasay City, which articles can be definitely pointed out or ascertain by simple inquiry at or about the premises. Note that the limitation found in the last paragraph of section 7 of the Chattel Mortgage Law1 on "like or subsituated properties" make reference to those "thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged", not to those already existing and originally included at the date of the constitution of the chattel mortgage. A contrary view would unduly impose a more rigid condition than what the law prescribes, which is that the description be only such as to enable identification after a reasonable inquiry and investigation.
The case of Giberson vs. A.N. Jureidini Bros., 44 Phil., 216, 219, cited by the appellees and the lower court, cannot be likened to the case at bar, for there, what were sought to be mortgaged included two stores wit all its merchandise, effects, wares, and other bazar goods which were being constantly disposed of and replaced with new supplies in connection with the business, thereby making any particular or definite identification either impractical or impossible under the circumstances. Here, the properties deemed overed were more or less fixed, or at least permanently situated or used in the premises of the mortgagor's restaurant.
The rule in the Jureidini case is further weakened by the court's observation that (44 Phil., p. 220) —
Moreover, if there should exist any doubts on the questions we have just discussed, they should be treshed out in the insolvency proceedings,
which appears inconsistent with the definitive character of the rulings invoked.
We find that the ground for the appealed order (lack of cause of action) does not appear so indubitable as to warrant a dismissal of the action without inquiry into the merits and without the description in the deed of mortgage (Nico vs. Blanco, 81 Phil., 213; Zobel vs. Abreau, 52 Off. Gaz., 3592).
Wherefore, the orders appealed from are set aside and the case remanded to the lower court for further proceedings. Costs against appellee.
[G.R. No. 103576. August 22, 1996]
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
D E C I S I O N
VITUG, J.:
Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred? This question is the core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of the Philippines. The mortgage stood by way of security for petitioner's corporate loan of three million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to this effect -
"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null and void. x x x.
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage."[1]
In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from respondent bank additional financial accommodations totalling P2,700,000.00. [2] These borrowings were on due date also fully paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos (P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity.[3] Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage, hereinbefore cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for injunction, with damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals [4] which, on 14 August 1991, affirmed, "in all respects," the decision of the court a quo. The motion for reconsideration was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially denied on 04 March 1992 by this Court for having been insufficient in form and substance. Private respondent filed a motion to dismiss the petition while petitioner corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's first motion for reconsideration but granted a second motion for reconsideration, thereby reinstating the petition and requiring private respondent to comment thereon.[5]
Except in criminal cases where the penalty of reclusion perpetua or death is imposed[6] which the Court so reviews as a matter of course, an appeal from judgments of lower courts is not a matter of right but of sound judicial discretion. The circulars of the Court prescribing technical and other procedural requirements are meant to weed out unmeritorious petitions that can unnecessarily clog the docket and needlessly consume the time of the Court. These technical and procedural rules, however, are intended to help secure, not suppress, substantial justice. A deviation from the rigid enforcement of the rules may thus be allowed to attain the prime objective for, after all, the dispensation of justice is the core reason for the existence of courts. In this instance, once again, the Court is constrained to relax the rules in order to give way to and uphold the paramount and overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship, the faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property - inpledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit - upon the essential condition that if the principal obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation, [7] but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory character[8] of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security becomes,ipso facto, null and void.[9]
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described,[10] a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law.[11] Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not against third
persons acting in good faith[12]), the fact, however, that the statute has provided that the parties to the contract must execute an oath that -
"x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud."[13]
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.,[14] the Court said -
"x x x A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage."[15]
The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist coincidentally with the full payment of the P3,000,000.00 loan,[16] there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter.
We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific finding on the amount of damages it has sustained "as a result of the unlawful action taken by respondent bank against it."[17] This prayer is not reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way of moral damages.[18] In LBC Express, Inc. vs. Court of Appeals,[19] we have said:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life - all of which cannot be suffered by respondent bank as an artificial person."[20]
While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so named as a party inrepresentation of petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out to be, however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on the petition his so-called "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the trial court, respondent Court of Appeals should be required to justify its decision which completely disregarded the basic laws on obligations and contracts, as well as the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of this Honorable Court; that in the event that its explanation is wholly unacceptable, this Honorable Court should impose appropriate sanctions on the erring justices. This is one positive step in ridding our courts of law of incompetent and dishonest magistrates especially members of a superior court of appellate jurisdiction."[21] (Italics supplied.)
The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero vs. Villamor;[22] thus:
"(L)awyers x x x should bear in mind their basic duty `to observe and maintain the respect due to the courts of justice and judicial officers and x x x (to) insist on similar conduct by others.' This respectful attitude towards the court is to be observed, `not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is `through a scrupulous preference for respectful language that a lawyer best demonstrates his observance of the respect due to the courts and judicial officers x x x.'"[23]
The virtues of humility and of respect and concern for others must still live on even in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to the appropriate legal recourse by private respondent as may still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts.
SO ORDERED.
G.R. No. 34385 September 21, 1931
ALEJANDRA TORRES, ET AL., plaintiff-appellees, vs.FRANCISCO LIMJAP, Special Administrator of the estate of the deceased Jose B. Henson, defendant-appellant.
x---------------------------------------------------------x
G.R. No. 34386 September 21, 1931
SABINA VERGARA VDA. DE TORRES, ET AL., plaintiffs-appellees, vs.FRANCISCO LIMJAP, Special Administration of the estate of the deceased Jose B. Henson, defendant-appellant.
Duran, Lim and Tuason for appellant.Guevara, Francisco and Recto for appellees.
JOHNSON, J.:
These two actions were commenced in the Court of First Instance of Manila on April 16, 1930, for the purpose of securing from the defendant the possession of two drug stores located in the City of Manila, covered by two chattel mortgages executed by the deceased Jose B. Henson in favor of the plaintiffs.
In the first case the plaintiffs alleged that Jose B. Henson, in his lifetime, executed in their favor a chattel mortgage (Exhibit A) on his drug store at Nos. 101-103 Calle Rosario, known as Farmacia Henson, to secure a loan of P7,000, although it was made to appear in the instrument that the loan was for P20,000.
In the second case the plaintiffs alleged that they were the heirs of the late Don Florentino Torres; and that Jose B. Henson, in his lifetime, executed in favor of Don Florentino Torres a chattel mortgage (also Exhibit A) on his three drug stores known as Henson's Pharmacy, Farmacia Henson and Botica Hensonina, to secure a loan of P50,000, which was later reduced to P26,000, and for which, Henson's Pharmacy at Nos. 71-73 Escolta, remained as the only security by agreement of the parties.
In both cases the plaintiffs alleged that the defendant violated the terms of the mortgage and that, in consequence thereof they became entitled to the possession of the chattels and to foreclose their mortgages thereon. Upon the petition of the plaintiffs and after the filing of the necessary bonds, the court issued in each case an order directing the sheriff of the City of Manila to take immediate possession of said drug stores.
The defendant filed practically the same answer to both complaints. He denied generally and specifically the plaintiffs' allegations, and set up the following special defenses:
(1) That the chattel mortgages (Exhibit A, in G.R. No. 34385 and Exhibit A, in G.R. No. 34286) are null and void for lack of sufficient particularity in the description of the property mortgaged; and
(2) That the chattels which the plaintiffs sought to recover were not the same property described in the mortgage.
The defendant also filed a counterclaim for damages in the sum of P20,000 in the first case and P100,000 in the second case.
Upon the issue thus raised by the pleadings, the two causes were tried together by agreement of the parties. After hearing the evidence adduced during the trial and on July 17, 1930, the Honorable Mariano Albert, judge, in a very carefully prepared opinion, arrived at the conclusion (a) that the defendant defaulted in the payment of interest on the loans secured by the mortgages, in violation of the terms thereof; (b) that by reason of said failure said mortgages became due, and (c) that the plaintiffs, as mortgagees, were entitled to the possession of the drug stores Farmacia Henson at Nos. 101-103 Calle Rosario and Henson's Pharmacy at Nos. 71-73 Escolta. Accordingly, a judgment was rendered in favor of the plaintiffs and against the defendant, confirming the attachment of said drug stores by the sheriff of the City of Manila and the delivery thereof to the plaintiffs. The dispositive part of the decision reads as follows:
En virtud de todo lo expuesto, el Juzgado dicta sentencia confirmado en todas sus partes los ordenes de fechas 16 y 17 de abril de presente ano, dictadas en las causas Nos. 37096 y 37097, respectivamente, y declara definitiva la entrega hecha a los demandantes por el Sheriff de Manila de las boticas en cuestion. Se condena en costas al demandado en ambas causas.
From the judgment the defendant appealed, and now makes the following assignments of error:
I. The lower court erred in failing to make a finding on the question of the sufficiency of the description of the chattels mortgaged and in failing to hold that the chattel mortgages were null and void for lack of particularity in the description of the chattels mortgaged.
II. The lower court erred in refusing to allow the defendant to introduce evidence tending to show that the stock of merchandise found in the two drug stores was not in existence or owned by the mortgagor at the time of the execution of the mortgages in question.
III. The lower court erred in holding that the administrator of the deceased is now estopped from contesting the validity of the mortgages in question.
IV. The lower court erred in failing to make a finding on the counterclaims of the defendant.
With reference to the first assignment of error, we deem it unnecessary to discuss the question therein raised, inasmuch as according to our view on the question of estoppel, as we shall hereinafter set forth in our discussion of the third assignment of error, the defendant is estopped from questioning the validity of these chattel mortgages.
In his second assignment of error the appellant attacks the validity of the stipulation in said mortgages authorizing the mortgagor to sell the goods covered thereby and to replace them with
other goods thereafter acquired. He insists that a stipulation authorizing the disposal and substitution of the chattels mortgaged does not operate to extend the mortgage to after-acquired property, and that such stipulation is in contravention of the express provision of the last paragraph of section 7 Act No. 1508, which reads as follows:
A chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding.
In order to give a correct construction to the above-quoted provision of our Chattel Mortgage Law (Act No. 1508), the spirit and intent of the law must first be ascertained. When said Act was placed on our statute books by the United States Philippine Commission on July 2, 1906, the primary aim of that law-making body was undoubtedly to promote business and trade in these Islands and to give impetus to the economic development of the country. Bearing this in mind, it could not have been the intention of the Philippine Commission to apply the provision of section 7 above quoted to stores open to the public for retail business, where the goods are constantly sold and substituted with new stock, such as drug stores, grocery stores, dry-goods stores, etc. If said provision were intended to apply to this class of business, it would be practically impossible to constitute a mortgage on such stores without closing them, contrary to the very spirit about a handicap to trade and business, would restrain the circulation of capital, and would defeat the purpose for which the law was enacted, to wit, the promotion of business and the economic development of the country.
In the interpretation and construction of a statute the intent of the law-maker should always be ascertained and given effect, and courts will not follow the letter of a statute when it leads away from the true intent and purpose of the Legislature and to conclusions inconsistent with the spirit of the Act. On this subject, Sutherland, the foremost authority on statutory construction, says:
The Intent of Statute is the Law. — If a statute is valid it is to have effect according to the purpose and intent of the lawmaker. The intent is the vital part, the essence of the law, and the primary rule of construction is to ascertain and give effect to that intent. The intention of the legislature in enacting a law is the law itself, and must be enforced when ascertained, although it may not be consistent with the strict letter of the statute. Courts will not follow the letter of a statute when it leads away from the true intent and purpose of the legislature and to conclusions inconsistent with the general purpose of the act. Intent is the spirit which gives life to a legislative enactment. In construing statutes the proper course is to start out and follow the true intent of the legislature and to adopt that sense which harmonizes best with the content and promotes in the fullest manner the apparent policy and objects of the legislature. (Vol. II Sutherland, Statutory Construction, pp. 693-695.)
A stipulation in the mortgage, extending its scope and effect to after-acquired property, is valid and binding —
. . . where the after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods, etc. (11 C.J., p. 436.)
Cobbey, a well-known authority on Chattel Mortgages, recognizes the validity of stipulations relating to after-acquired and substituted chattels. His views are based on the decisions of the supreme courts of several states of the Union. He says: "A mortgage may, by express stipulations, be drawn to cover goods put in stock in place of others sold out from time to time. A mortgage may be made to include future acquisitions of goods to be added to the original stock mortgaged, but the mortgage
must expressly provide that such future acquisitions shall be held as included in the mortgage. ... Where a mortgage covering the stock in trade, furniture, and fixtures in the mortgagor's store provides that "all goods, stock in trade, furniture, and fixtures hereafter purchased by the mortgagor shall be included in and covered by the mortgage," the mortgage covers all after-acquired property of the classes mentioned, and, upon foreclosure, such property may be taken and sold by the mortgagee the same as the property in possession of the mortgagor at the time the mortgage was executed." (Vol. I, Cobbey on Chattel Mortgages, sec. 361, pp. 474, 475.)
In harmony with the foregoing, we are of the opinion (a) that the provision of the last paragraph of section 7 of Act No. 1508 is not applicable to drug stores, bazaars and all other stores in the nature of a revolving and floating business; (b) that the stipulation in the chattel mortgages in question, extending their effect to after-acquired property, is valid and binding; and (c) that the lower court committed no error in not permitting the defendant-appellant to introduce evidence tending to show that the goods seized by the sheriff were in the nature of after-acquired property.
With reference to the third assignment of error, we agree with the lower court that, from the facts of record, the defendant-appellant is estopped from contenting the validity of the mortgages in question. This feature of the case has been very ably and fully discussed by the lower court in its decision, and said discussion is made, by reference, a part of this opinion.
As to the fourth assignment of error regarding the counterclaims of the defendant-appellant, it may be said that in view of the conclusions reached by the lower court, which are sustained by this court, the lower court committed no error in not making any express finding as to said counterclaims. As a matter of form, however, the counter-claims should have been dismissed, but as the trial court decided both cases in favor of the plaintiffs and confirmed and ratified the orders directing the sheriff to take possession of the chattels on behalf of the plaintiffs, there was, in effect, a dismissal of the defendant's counterclaims.
For all of the foregoing, we are of the opinion and so hold that the judgment appealed from is in accordance with the facts and the law, and the same should be and is hereby affirmed, with costs. So ordered.
G.R. No. L-20234 December 23, 1964
PAULA DE LA CERNA, ET AL., petitioners, vs.MANUELA REBACA POTOT, ET AL., and THE HONORABLE COURT OF APPEALS, respondents.
Philip M. Alo and Crispin M. Menchavez for petitioners.Nicolas Jumapao for respondents.
REYES, J.B.L., J.:
Appeal by Paula de la Cerna and others from a decision of the Court of Appeals, Sixth Division (C.A.-G.R. No. 23763-R) reversing that of the Court of First Instance of Cebu (Civ. Case No. R-3819) and ordering the dismissal of an action for partition.
The factual background appears in the following portion of the decision of the Court of Appeals (Petition, Annex A, pp. 2-4):
It appears that on May 9, 1939, the spouses, Bernabe de la Serna and Gervasia Rebaca, executed a joint last will and testament in the local dialect whereby they willed that "our two parcels of land acquired during our marriage together with all improvements thereon shall be given to Manuela Rebaca, our niece, whom we have nurtured since childhood, because God did not give us any child in our union, Manuela Rebaca being married to Nicolas Potot", and that "while each of the testators is yet living, he or she will continue to enjoy the fruits of the two lands aforementioned", the said two parcels of land being covered by Tax No. 4676 and Tax No. 6677, both situated in sitio Bucao, barrio Lugo, municipality of Borbon, province of Cebu. Bernabe dela Serna died on August 30, 1939, and the aforesaid will was submitted to probate by said Gervasia and Manuela before the Court of First Instance of Cebu which, after due publication as required by law and there being no opposition, heard the evidence, and, by Order of October 31, 1939; in Special Proceedings No. 499, "declara legalizado el documento Exhibit A como el testamento y ultima voluntad del finado Bernabe de la Serna con derecho por parte du su viuda superstite Gervasia Rebaca y otra testadora al propio tiempo segun el Exhibit A de gozar de los frutos de los terranos descritos en dicho documents; y habido consideracion de la cuantia de dichos bienes, se decreta la distribucion sumaria de los mismos en favor de la logataria universal Manuela Rebaca de Potot previa prestacion por parte de la misma de una fianza en la sum de P500.00 para responder de cualesquiera reclamaciones que se presentare contra los bienes del finado Bernabe de la Serna de los años desde esta fecha" (Act Esp. 499, Testamentaria Finado Bernabe de la Serna) Upon the death of Gervasia Rebaca on October 14, 1952, another petition for the probate of the same will insofar as Gervasia was concerned was filed on November 6, 1952, being Special Proceedings No. 1016-R of the same Court of First Instance of Cebu, but for failure of the petitioner, Manuela R. Potot and her attorney, Manuel Potot to appear, for the hearing of said petition, the case was dismissed on March 30, 1954 Spec. Proc. No. 1016-R, In the matter of the Probate of the Will of Gervasia Rebaca).
The Court of First Instance ordered the petition heard and declared the testament null and void, for being executed contrary to the prohibition of joint wills in the Civil Code (Art. 669, Civil Code of 1889 and Art. 818, Civil Code of the Philippines); but on appeal by the testamentary heir, the Court of Appeals reversed, on the ground that the decree of probate in 1939 was issued by a court of probate jurisdiction and conclusive on the due execution of the testament. Further, the Court of Appeals declared that:
... . It is true the law (Art. 669, old Civil Code; Art. 818, new Civil Code). prohibits the making of a will jointly by two or more persons either for their reciprocal benefit or for the benefit of a third person. However, this form of will has long been sanctioned by use, and the same has continued to be used; and when, as in the present case, one such joint last will and testament has been admitted to probate by final order of a Court of competent jurisdiction, there seems to be no alternative except to give effect to the provisions thereof that are not contrary to law, as was done in the case of Macrohon vs. Saavedra, 51 Phil. 267, wherein our Supreme Court gave effect to the provisions of the joint will therein mentioned, saying, "assuming that the joint will in question is valid."
Whence this appeal by the heirs intestate of the deceased husband, Bernabe de la Cerna.
The appealed decision correctly held that the final decree of probate, entered in 1939 by the Court of First Instance of Cebu (when the testator, Bernabe de la Cerna, died), has conclusive effect as to his last will and testament despite the fact that even then the Civil Code already decreed the invalidity of joint wills, whether in favor of the joint testators, reciprocally, or in favor of a third party (Art. 669, old Civil Code). The error thus committed by the probate court was an error of law, that should have been corrected by appeal, but which did not affect the jurisdiction of the probate court, nor the conclusive effect of its final decision, however erroneous. A final judgment rendered on a petition for the probate of a will is binding upon the whole world (Manalo vs. Paredes, 47 Phil. 938; In re Estates of Johnson, 39 Phil. 156); and public policy and sound practice demand that at the risk of occasional errors judgment of courts should become final at some definite date fixed by law. Interest rei publicae ut finis set litium (Dy Cay vs. Crossfield, 38 Phil, 521, and other cases cited in 2 Moran, Comments on the Rules of Court (1963 Ed., p. 322).
Petitioners, as heirs and successors of the late Bernabe de la Cerna, are concluded by the 1939 decree admitting his will to probate. The contention that being void the will cannot be validated, overlooks that the ultimate decision on Whether an act is valid or void rests with the courts, and here they have spoken with finality when the will was probated in 1939. On this court, the dismissal of their action for partition was correct.
But the Court of Appeals should have taken into account also, to avoid future misunderstanding, that the probate decree in 1989 could only affect the share of the deceased husband, Bernabe de la Cerna. It could not include the disposition of the share of the wife, Gervasia Rebaca, who was then still alive, and over whose interest in the conjugal properties the probate court acquired no jurisdiction, precisely because her estate could not then be in issue. Be it remembered that prior to the new Civil Code, a will could not be probated during the testator's lifetime.
It follows that the validity of the joint will, in so far as the estate of the wife was concerned, must be, on her death, reexamined and adjudicated de novo, since a joint will is considered a separate will of each testator. Thus regarded, the holding of the court of First Instance of Cebu that the joint will is one prohibited by law was correct as to the participation of the deceased Gervasia Rebaca in the properties in question, for the reasons extensively discussed in our decision in Bilbao vs. Bilbao, 87 Phil. 144, that explained the previous holding in Macrohon vs. Saavedra, 51 Phil. 267.
Therefore, the undivided interest of Gervasia Rebaca should pass upon her death to her heirs intestate, and not exclusively to the testamentary heir, unless some other valid will in her favor is shown to exist, or unless she be the only heir intestate of said Gervasia.
It is unnecessary to emphasize that the fact that joint wills should be in common usage could not make them valid when our Civil Codes consistently invalidated them, because laws are only repealed by other subsequent laws, and no usage to the contrary may prevail against their observance (Art. 5, Civ. Code of 1889; Art. 7, Civil Code of the Philippines of 1950).
WITH THE FOREGOING MODIFICATION, the judgment of the Court of Appeals in CA-G.R. No. 23763-R is affirmed. No Costs.
G.R. No. L-40018 December 15, 1975
NORTHERN MOTORS, INC., petitioner, vs.HON. JORGE R. COQUIA, etc., et al., respondents, FILINVEST CREDIT CORPORATION, intervenor.
R E S O L U T I O N
AQUINO, J.:
Respondent Honesto Ong and City Sheriff of Manila filed a motion for the reconsideration of this Court's resolution of August 29, 1975. In that resolution, it was held that the lien of Northern Motors, Inc., as chattel mortgagee, over certain taxicabs is superior to the levy made on the said cabs by Honesto Ong, the assignee of the unsecured judgment creditor of the chattel mortgagor, Manila Yellow Taxicab Co., Inc.
On the other hand, Northern Motors, Inc. in its motion for the partial reconsideration of the same August 29 resolution, prayed for the reversal of the lower court's orders cancelling the bond filed by Filwriters Guaranty Assurance Corporation. Northern Motors, Inc. further prayed that the sheriff should be required to deliver to it the proceeds of the execution sale of the mortgaged taxicabs without deducting the expenses of execution.
1. Respondents' motion for reconsideration. — Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the mortgaged taxicabs. He contends that his only recourse was to levy upon the taxicabs which were in the possession of the judgment debtor, Manila Yellow Taxicab Co. Inc., whereas, Northern Motors, Inc., as unpaid seller and mortgagee, "has still an independent legal remedy" against the mortgagor for the recovery of the unpaid balance of the price.
That contention is not a justification for setting aside the holding that Ong had no right to levy upon the mortgaged taxicabs and that he could have levied only upon the mortgagor's equity of redemption. The essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and not for the judgment credit of the mortgagor's unsecured creditor. The mortgagee is not obligated to file an "independent action" for the enforcement of his credit. To require him to do so would be a nullification of his lien and would defeat the purpose of the chattel mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his credit. (See art. 2087, Civil Code).
It is relevant to note that intervenor Filinvest Credit Corporation, the assignee of a portion of the chattel mortgage credit, realized that to vindicate its claim by independent action would be illusory. For that pragmatic reason, it was constrained to enter into a compromise with Honesto Ong by agreeing to pay him P145,000. That amount was characterized by Northern Motors, Inc. as the "ransom" for the taxicabs levied upon by the sheriff at the behest of Honesto Ong.
Honesto Ong's theory that Manila Yellow Taxicab's breach of the chattel mortgage should not affect him because he is not privy of such contract is untenable. The registration of the chattel mortgage is an effective and binding notice to him of its existence (Ong Liong Tiak vs. Luneta Motor Company, 66 Phil 459). The mortgage creates a real right (derecho real, jus in re or jus ad rem, XI Enciclopedia Juridica Española 294) or a lien which, being recorded, follows the chattel wherever it goes.
Honesto Ong's contention that Northern Motors, Inc., was negligent because it did not sue the sheriff within the 120-day period provided for in section 17, Rule 39 of the Rules of Court is not correct. Such action was filed on April 14, 1975 in the Court of First Instance of Rizal, Pasig Branch XIII, in Civil Case No. 21065 entitled "Northern Motors, Inc. vs. Filwriters Guaranty Assurance Corporation, et al.". However, instead of Honesto Ong, his assignor, Tropical Commercial Corporation, was impleaded as a defendant therein. That might explain his unawareness of the pendency of such action.
The other arguments of Honesto Ong in his motion may be boiled down to the proposition that the levy made by mortgagor's judgment creditor against the chattel mortgagor should prevail over the chattel mortgage credit. That proposition is devoid of any legal sanction and is glaringly contrary to the nature of a chattel mortgage. To uphold that contention is to destroy the essence of chattel mortgage as a paramount encumbrance on the mortgaged chattel.
Respondent Ong admits "that the mortgagee's right to the mortgaged property is superior to that of the judgment creditor". But he contends that the rights of the purchasers of the cars at the execution sale should be respected. He reasons out they were not parties to the mortgage and that they acquired the cars prior to the mortgagee's assertion of its rights thereto.
That contention is not well-taken. The third-party claim filed by Northern Motors, Inc. should have alerted the purchasers to the risk which they were taking when they took part in the auction sale. Moreover, at an execution sale the buyers acquire only the right of the judgment debtor which in this case was a mere right or equity of redemption. The sale did not extinguish the pre-existing mortgage lien (See sec. 25, Rule 39, Rules of Court; Potenciano vs. Dineros and Provincial Sheriff of Rizal, 97 Phil, 196; Lara vs. Bayona, 97 Phil. 951; Hacbang vs. Leyte Autobus Co., Inc., L-7907, May 30, 1963, 8 SCRA 103).
Some arguments adduced by Honesto Ong in his motion were intended to protect the interests of the mortgagor, Manila Yellow Taxicab Co., Inc., which he erroneously characterized as a "respondent" (it is not a respondent in this case). Ong argues that the proceeds of the execution sale, which was held on December 18, 1974, should be delivered to Northern Motors, Inc. "only to such extent as has exceeded the amount paid by respondent Manila Yellow Taxicab to" Northern Motors, Inc. That argument is not clear. Ong probably means that the installments already paid by Manila Yellow Taxicab Co., Inc. to Northern Motors, Inc. should be deducted from the proceeds of the execution sale. If that is the point which Ong is trying to put across, and it is something which does not directly affect him, then, that matter should be raised by Manila Yellow Taxicab Co., Inc. in the replevin case, Civil Case No. 20536 of the Court of First Instance of Rizal, Pasig Branch VI, entitled "Northern Motors, Inc. versus Manila Yellow Taxicab Co., Inc. et al."
Ong's contention, that the writ of execution, which was enforced against the seven taxicabs (whose sale at public auction was stopped) should have precedence over the mortgage lien, cannot be sustained. Those cabs cannot be sold at an execution sale because, as explained in the resolution under reconsideration, the levy thereon was wrongful.
The motion for reconsideration of Ong and the sheriff should be denied.
2. Petitioners motion for partial reconsideration. — The lower court in its order of January 3, 1975 cancelled the indemnity bonds for P480,000 filed on December 18, 1975 by Filwriters Guaranty Assurance Corporation for Tropical Commercial Co., Inc. The bonds were cancelled without notice to Northern Motors, Inc. as third-party claimant.
We already held that the cancellation of the bonds constituted a grave abuse of discretion but we previously denied petitioner's prayer for the reinstatement of the bonds because Northern Motors Inc. had given the impression that it had not filed any action for damages against the sheriff within the one hundred twenty-day period contemplated in Section 17, Rule 39 of the Rules of Court.
As already noted above, the truth is that such an action for damages was filed on April 14, 1975 against the surety, the sheriff and the judgment creditor in Civil Case No. 21065 of the Court of First Instance of Rizal, Pasig Branch XIII. The action involves the indemnity bond for P240,000 (No. 0032 posted on December 18, 1974).
It may also be noted that in a prior case, Civil Case No. 20536 of the Court of First Instance of Rizal at Pasig, entitled "Northern Motors, Inc. vs. Manila Yellow Taxicab Co., Inc., et al.", a replevin case (where an amended complaint dated January 15, 1975 was filed), the surety, Filwriters Guaranty Assurance Corporation, was impleaded as a defendant by reason of its bond for P240,000. Northern Motors, Inc. in that case prayed that the surety be ordered to pay to it damages in the event that the eight taxicabs could not be surrendered to the mortgagee.
Northern Motors, Inc., in its instant motion for partial reconsideration, reiterates its petition for the reinstatement of the bond filed by Filwriters Guaranty Assurance Corporation. If the said bond is not reinstated or if the lower court's orders cancelling it are allowed to stand, the aforementioned Civil Cases Nos. 20536 and 21065 would be baseless or futile actions against the surety. That injustice should be corrected. Hence, our resolution of August 29, 1975, insofar as it did not disturb the lower court's orders cancelling the indemnity bonds, should be reconsidered.
Northern Motors. Inc. further prays for the reconsideration of that portion of our resolution allowing the sheriff to deduct expenses from the proceeds of the execution sale for the eight taxicabs which sale was held on December 18, 1974. It argues that Honesto Ong or Manila Yellow Taxicab Co., Inc. should shoulder such expenses of execution.
We already held that the execution was not justified and that Northern Motors, Inc., as mortgagee, was entitled to the possession of the eight taxicabs. Those cabs should not have been levied upon and sold at public auction to satisfy the judgment credit which was inferior to the chattel mortgage. Since the cabs could no longer be recovered because apparently they had been transferred to persons whose addresses are unknown (see par. 12, page 4, Annex B of motion), the proceeds of the execution sale may be regarded as a partial substitute for the unrecovarable cabs (See arts. 1189[2] and 1269, Civil Code; Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632). Northern Motors, Inc. is entitled to the entire proceeds without deduction of the expenses of execution.
WHEREFORE, private respondents' motion for reconsideration is denied and petitioner's motion for partial reconsideration is granted. The resolution of August 29, 1975 is modified in the sense that the lower court's orders of January 3 and 6, 1975, cancelling the indemnity bond for P240,000 (as reaffirmed in its order of January 17, 1975), are set aside. The said indemnity bond for P240,000 is regarded as in full force and Respondent Sheriff of Manila is further directed to deliver to Northern Motors, Inc. the entire proceeds of the execution sale held on December 18, 1974 for the eight taxicabs which were mortgaged to that firm.
SO ORDERED.
[G.R. NO. 179756 : October 2, 2009]
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, v. ROYAL CARGO CORPORATION,Respondent.
D E C I S I O N
CARPIO MORALES, J.:
Terrymanila, Inc.1 (Terrymanila) filed a petition for voluntary insolvency with the Regional Trial Court (RTC) of Bataan on February 13, 1991.2 One of its creditors was Rizal Commercial Banking Corporation (petitioner) with which it had an obligation of P3 Million that was secured by a chattel mortgage executed on February 16, 1989. The chattel mortgage was duly recorded in the notarial register of Amado Castano, a notary public for and in the Province of Bataan.3
Royal Cargo Corporation (respondent), another creditor of Terrymanila, filed an action before the RTC of Manilafor collection of sum of money and preliminarily attached "some" of Terrymanila's personal properties on March 5, 1991 to secure the satisfaction of a judgment award of P296,662.16, exclusive of interests and attorney's fees.4
On April 12, 1991, the Bataan RTC declared Terrymanila insolvent.
On June 11, 1991,5 the Manila RTC, by Decision of even date, rendered judgment in the collection case in favor of respondent.
In the meantime, petitioner sought in the insolvency proceedings at the Bataan RTC permission to extrajudicially foreclose the chattel mortgage which was granted by Order of February 3, 1992.6 It appears that respondent, together with its employees' union, moved to have this Order reconsidered but the motion was denied by Order of March 20, 1992 Order. 7
The provincial sheriff of Bataan thereupon scheduled on June 16, 1992 the public auction sale of the mortgaged personal properties at the Municipal Building of Mariveles, Bataan. At the auction sale, petitioner, the sole bidder of the properties, purchased them for P1.5 Million. Eventually, petitioner sold the properties to Domingo Bondoc and Victoriano See.8
Respondent later filed on July 30, 1992 a petition before the RTC of Manila, docketed as Civil Case No. 92-62106, against the Provincial Sheriff of the RTC Bataan and petitioner, for annulment of the auction sale (annulment of sale case). Apart from questioning the inclusion in the auction sale9 of some of the properties which it had attached, respondent questioned the failure to duly notify it of the sale at least 10 days before the sale, citing Section 14 of Act No. 1508 or the Chattel Mortgage Law which reads:
Sec. 14. The mortgagee, his executor, administrator or assign, may, after thirty days, from the time of condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides, or where the property is situated, provided at least ten days notice of the time, place, and purpose of such sale has been posted at two or more public places in such municipality, and the mortgagee, his executor, administrator or assignee shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale, either by notice in writing directed to him or left at his abode, if within the municipality, or sent by mail if he does not reside in such municipality, at least ten days previous to the date. ( Emphasis and underscoring supplied),
it claiming that its counsel received a notice only on the day of the sale.10
Petitioner, alleging that the annulment of sale case filed by respondent stated no cause of action, filed on December 3, 1992 a Motion to Dismiss11 which was, however, denied by Branch 16 of the Manila RTC.12
Petitioner appealed the denial of the Motion to Dismiss via certiorari to the Court of Appeals, docketed as CA-G.R. SP No. 31125. The appellate court dismissed the petition, by Decision of February 21, 1994, it holding that respondent's petition for annulment " prima facie states a sufficient cause of action and that the [trial court] in denying [herein petitioner RCBC's] motion to dismiss, had acted advisedly and well within its powers and authority."13
Petitioner thereupon filed before the Manila RTC its Answer Ex Abundante Cautelam14 in the annulment of sale case in which it lodged a Compulsory Counterclaim by seeking P1 Million for moral damages, P500,000 for exemplary damages, and P250,000 for attorney's fees. It thereafter elevated the case to this Court via Petition for Review on Certiorari, docketed as G.R. 115662. This Court by minute Resolution of November 7, 1994,15 denied the petition for failure to show that a reversible error was committed by the appellate court.16
Trial on the merits of the annulment of sale case thereupon ensued. By Decision17 of October 15, 1997, Branch 16 of the Manila RTC rendered judgment in favor of respondent, disposing as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. ORDERING . . . RCBC to pay plaintiff [heein respondent Royal Cargo] the amount ofP296,662.16 and P8,000.00 as reasonable attorney's fees.
2. No pronouncement as to costs.
3. DISMISSING the petition as to respondents Provincial Sheriff of Balanga, Bataan RTC;
SO ORDERED.
Both parties appealed to the Court of Appeals which, by Decision18 of April 17, 2007, denied herein petitioner's appeal and partly granted herein respondent's by increasing to P50,000 the attorney's fees awarded to it and additionally awarding it exemplary damages and imposing interest on the principal amount payable to it. Thus it disposed:
WHEREFORE, the foregoing considered, the appeal instituted by appellant RCBC is hereby DENIED for lack of merit while the appeal of appellant Royal Cargo is PARTLY GRANTED in that the amount of attorney's fees awarded by the RTC is increased to P50,000.00.
In addition, RCBC is ordered to pay Royal Cargo the amount of P100,000.00 as exemplary damages. The principal amount of P296,662.18 [sic] to be paid by RCBC to Royal Cargo shall likewise earn12% interest per annum from the time the petition was filed in the court a quo until fully paid. The rest of the decision is AFFIRMED.
SO ORDERED. (Emphasis and underscoring supplied)cralawlibrary
In partly granting respondent's appeal from the Decision of Br. 16 of RTC Manila, the appellate court ratiocinated that respondent had a right to be "timely informed" of the foreclosure sale.
RCBC's citations [sic] of numerous rulings on the matter more than supports the fact that as mortgagee, it had preferential right over the chattels subject of the foreclosure sale. This however is not at issue in this case. What is being contested is the right of Royal Cargo to be timely informed of the foreclosure sale as it too had interests over the mortgagee Terrymanila, Inc.'s assets. We note that this matter had already been passed upon by this Court on February 21, 1994 in CA-G.R. SP No. 31125 as well as by the Supreme Court on November 7, 1994 in G.R. No. [1]15662. RCBC, by arguing about its preferential right as mortgagee in the instant appeal merely reiterates what had already been considered and ruled upon in earlier proceedings.
[G.R. No. 106435. July 14, 1999]
PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAY R. PULIDO, petitioners, vs. HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES, respondents.
D E C I S I O N
GONZAGA-REYES, J.:
Before Us for review on certiorari is the decision of the respondent Court of Appeals in CA G.R. CV No. 27861, promulgated on April 23, 1992,[1]affirming in toto the decision of the Regional Trial Court of Makati[2] to award respondent bank’s deficiency claim, arising from a loan secured by chattel mortgage.
The antecedents of the case are as follows:
On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan, petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed a promissory note for the said amount, promising to pay the loan by installment. As security for the said loan, a chattel mortgage was also executed over PAMECA’s properties in Dumaguete City, consisting of inventories, furniture and equipment, to cover the whole value of the loan.
On January 18, 1984, and upon petitioner PAMECA’s failure to pay, respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed properties for a sum of P322,350.00. On June 29, 1984, respondent bank filed a complaint for the collection of the balance of P4,366,332.46 [3] with Branch 132 of the Regional Trial Court of Makati City against petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under the promissory note.
On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of which we reproduce as follows:
“WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and severally plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim of the latter as of March 31, 1984, plus 21% interest per annum and other charges from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit. SO ORDERED.”[4]
The Court of Appeals affirmed the RTC decision. Hence, this Petition.
The petition raises the following grounds:
“1. Respondent appellate court gravely erred in not reversing the decision of the trial court, and in not holding that the public auction sale of petitioner PAMECA’s chattels were tainted with fraud, as the chattels of the said petitioner were bought by private respondent as sole bidder in only 1/6 of the market value of the property, hence unconscionable and inequitable, and therefore null and void.
2. Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of the Civil Code by reading the spirit of the law, and taking into consideration the fact that the contract of loan was a contract of adhesion.
3. The appellate court gravely erred in holding the petitioners Herminio Teves, Victoria Teves and Hiram Diday R. Pulido solidarily liable with PAMECA Wood Treatment Plant, Inc. when the intention of the parties was that the loan is only for the corporation’s benefit.”
Relative to the first ground, petitioners contend that the amount of P322,350.00 at which respondent bank bid for and purchased the mortgaged properties was unconscionable and inequitable considering that, at the time of the public sale, the mortgaged properties had a total value of more than P2,000,000.00. According to petitioners, this is evident from an inventory dated March 31, 1980[5], which valued the properties at P2,518,621.00, in accordance with the terms of the chattel mortgage contract[6] between the parties that required that the inventories “be maintained at a level no less than P2 million”. Petitioners argue that respondent bank’s act of bidding and purchasing the mortgaged properties for P322,350.00 or only about 1/6 of their actual value in a public sale in which it was the sole bidder was fraudulent, unconscionable and inequitable, and constitutes sufficient ground for the annulment of the auction sale.
To this, respondent bank contends that the above-cited inventory and chattel mortgage contract were not in fact submitted as evidence before the RTC of Makati, and that these documents were first produced by petitioners only when the case was brought to the Court of Appeals.[7] The Court of Appeals, in turn, disregarded these documents for petitioners’ failure to present them in evidence, or to even allude to them in their testimonies before the lower court.[8]Instead, respondent court declared that it is not at all unlikely for the chattels to have sufficiently deteriorated as to have fetched such a low price at the time of the auction sale.[9] Neither did respondent court find anything irregular or fraudulent in the circumstance that respondent bank was the sole bidder in the sale, as all the legal procedures for the conduct of a foreclosure sale have been complied with, thus giving rise to the presumption of regularity in the performance of public duties.[10]
Petitioners also question the ruling of respondent court, affirming the RTC, to hold private petitioners, officers and stockholders of petitioner PAMECA, liable with PAMECA for the obligation under the loan obtained from respondent bank, contrary to the doctrine of separate and distinct corporate personality.[11] Private petitioners contend that they became signatories to the promissory note “only as a matter of practice by the respondent bank”, that the promissory note was in the nature of a contract of adhesion, and that the loan was for the benefit of the corporation, PAMECA, alone.[12]
Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles 1484[13] and 2115[14] of the Civil Code be applied in analogy to the instant case to preclude the recovery of a deficiency claim.[15]
Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of chattel mortgage. In the leading case of Ablaza vs. Ignacio[16], the lower court dismissed the complaint for collection of deficiency judgment in view of Article 2141 of the Civil Code, which provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar as they are not in conflict with the Chattel Mortgage Law. It was the lower court’s opinion that, by virtue of Article 2141, the provisions of Article 2115 which deny the creditor-pledgee the right to recover deficiency in case the proceeds of the foreclosure sale are less than the amount of the principal obligation, will apply.
This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of Article 2115, Article 2115 in relation to Article 2141, may not be applied to the case.
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:
“x x x
The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same in the office of the Registry of Deeds where the mortgage is recorded, and the Register of Deeds shall record the same. The fees of the officer for selling the property shall be the same as the case of sale on execution as provided in Act Numbered One Hundred and Ninety, and the amendments thereto, and the fees of the Register of Deeds for registering the officer’s return shall be taxed as a part of the costs of sale, which the officer shall pay to the Register of Deeds. The return shall particularly describe the articles sold, and state the amount received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the mortgage, shall be paid to the mortgagor or persons holding under him on demand.” (Emphasis supplied)
It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation, Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs.
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in the price at public auction. As explained in Manila Trading and Supply Co. vs. Tamaraw Plantation Co.[17], cited in Ablaza vs. Ignacio, supra:
“While it is true that section 3 of Act No. 1508 provides that ‘a chattel mortgage is a conditional sale’, it further provides that it ‘is a conditional sale of personal property as security for the payment of a debt, or for the performance of some other obligation specified therein.’ The lower court overlooked the fact that the chattels included in the chattel mortgage are only given as security and not as a payment of the debt, in case of a failure of payment.
The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the mortgage, given as security, should sell for more than the amount of the indebtedness secured, that the creditor would be entitled to the full amount for which it might be sold, even though that amount was greatly in excess of the indebtedness. Such a result certainly was not contemplated by the legislature when it adopted Act No. 1508. There seems to be no reason supporting that theory under the provision of the law. The value of the chattels changes greatly from time to time, and sometimes very rapidly. If, for example, the chattels should greatly increase in value and a sale under that condition should result in largely overpaying the indebtedness, and if the creditor is not permitted to retain the excess, then the same token would require the debtor to pay the deficiency in case of a reduction in the price of the chattels between the date of the contract and a breach of the condition.
Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of chattel mortgages, have said, that ‘in case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action for the deficiency, if any should occur.’ And the fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of the debt, to any greater extent than the value of the property at the time of the sale. The amount received at the time of the sale, of course, always requiring good faith and honesty in the sale, is only a payment, pro tanto, and an action may be maintained for a deficiency in the debt.”
We find no reason to disturb the ruling in Ablaza vs. Ignacio, and the cases reiterating it[18]
Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case. As correctly pointed out by the trial court, the said article applies clearly and solely to the sale of personal property the price of which is payable in installments. Although Article 1484, paragraph (3) expressly bars any further action against the purchaser to recover an unpaid balance of the price, where the vendor opts to foreclose the chattel mortgage on the thing
sold, should the vendee’s failure to pay cover two or more installments, this provision is specifically applicable to a sale on installments.
To accommodate petitioners’ prayer even on the basis of equity would be to expand the application of the provisions of Article 1484 to situations beyond its specific purview, and ignore the language and intent of the Chattel Mortgage Law. Equity, which has been aptly described as “justice outside legality”, is applied only in the absence of, and never against, statutory law or judicial rules of procedure.[19]
We are also unable to find merit in petitioners’ submission that the public auction sale is void on grounds of fraud and inadequacy of price. Petitioners never assailed the validity of the sale in the RTC, and only in the Court of Appeals did they attempt to prove inadequacy of price through the documents, i.e., the “Open-End Mortgage on Inventory” and inventory dated March 31, 1980, likewise attached to their Petition before this Court. Basic is the rule that parties may not bring on appeal issues that were not raised on trial.
Having nonetheless examined the inventory and chattel mortgage document as part of the records, We are not convinced that they effectively prove that the mortgaged properties had a market value of at least P2,000,000.00 on January 18, 1984, the date of the foreclosure sale. At best, the chattel mortgage contract only indicates the obligation of the mortgagor to maintain the inventory at a value of at least P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn, was as of March 31, 1980, or even prior to April 17, 1980, the date when the parties entered into the contracts of loan and chattel mortgage, and is far from being an accurate estimate of the market value of the properties at the time of the foreclosure sale four years thereafter. Thus, even assuming that the inventory and chattel mortgage contract were duly submitted as evidence before the trial court, it is clear that they cannot suffice to substantiate petitioners’ allegation of inadequacy of price.
Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in the public sale does not warrant the conclusion that the transaction was attended with fraud. Fraud is a serious allegation that requires full and convincing evidence, [20] and may not be inferred from the lone circumstance that it was only respondent bank that bid in the sale of the foreclosed properties. The sparseness of petitioners’ evidence in this regard leaves Us no discretion but to uphold the presumption of regularity in the conduct of the public sale.
We likewise affirm private petitioners’ joint and several liability with petitioner corporation in the loan. As found by the trial court and the Court of Appeals, the terms of the promissory note unmistakably set forth the solidary nature of private petitioners’ commitment. Thus:
“On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT, INC., a corporation organized and existing under the laws of the Philippines, with principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at corner Buendia and Makati Avenues, Makati, Metro Manila, the principal sum of TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US DOLLARS (US$ 267,881.67) with interest at the rate of three per cent (3%) per annum over DBP’s borrowing rate for these funds. Before the
date of maturity, we hereby bind ourselves, jointly and severally, to make partial payments as follows:”
xxx
“In case of default in the payment of any installment above, we bind ourselves to pay DBP for advances xxx “
xxx
“We further bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows:”
xxx
"In addition to the above, we also bind ourselves to pay for bank advances for insurance premiums, taxes xxx “
xxx
"We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreign currency borrowings from where the loan shall be drawn xxx “
xxx
“In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or amounts due on account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of the payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES is constrained to entrust the case to its attorneys, we jointly and severally bind ourselves to pay for attorney’s fees as provided for in the mortgage contract, in addition to the legal fees and other incidental expenses. In the event of foreclosure of the mortgage securing this note, we further bind ourselves jointly and severally to pay the deficiency, if any.” (Emphasis supplied)[21]
The promissory note was signed by private petitioners in the following manner:
“PAMECA WOOD TREATMENT PLANT, INC.
By:
(Sgd) HERMINIO G. TEVES
(For himself & as President of above-named corporation)
(Sgd) HIRAM DIDAY PULIDO
(Sgd) VICTORIA V. TEVES”[22]
From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with petitioner PAMECA in the loan. As correctly submitted by respondent bank, private petitioners are not made to answer for the corporate act of petitioner PAMECA, but are made liable because they made themselves co-makers with PAMECA under the promissory note.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals dated April 23, 1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. L-14938 December 29, 1962
MAGDALENA C. DE BARRETTO and JOSE G. BARRETTO, plaintiffs-appellants, vs.JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Bausa, Ampil and Suarez for plaintiffs-appellants.Esteban Ocampo and Mariano H. de Joya for defendants-appellees.
R E S O L U T I O N
REYES, J.B.L., J.:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed in the courts of this resolution, that our decision of 28 January 1961 be reconsidered and set aside, and a new one entered declaring that their right as mortgagees remain superior to the unrecorded claim of herein appellee for the balance of the purchase price of her rights, title, and interest in the mortgaged property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of P17,500.00. However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32526), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose G. Barretto, to secure a loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of P12,000.00 plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of Manila.
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new Civil Code of the Philippines, can only become effective in the event of insolvency of the vendee, which has not been proved to exist in the instant case; and
(2) That the appellee Cruzado is not a true vendor of the foreclosed property.
We have given protracted and mature consideration to the facts and law of this case and have reached the conclusion that our original decision must be reconsidered and set aside, for the following reasons:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust such proceeds if necessary.
Under the system of the Civil Code of the Philippine however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves but must be paid pro rata, i.e., in proportion to the amount of the respective credits. Thus, Article 2249 provides:
if there are two or more credits with respect to specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real right.
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and 2242 demands that there must first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that —
The claims or credits enumerated in the two preceding articles1 shall be considered as mortgages or pledges of real or personal property or liens within the purview of legal provision governing insolvency . . . . (Emphasis supplied).
and the rule is further clarified in the Report of the Code Commission, as follows:
The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Involvency Law. (Emphasis supplied.)
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore, the order of the Court of First Instance of Manila now appealed from decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee, is incorrect and must be reversed.
In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's estate), the conflict between the parties now before us must be decided pursuant to the well established principle concerning register lands; that a purchaser in good faith and for value (as the appellant concededly is) takes registered property free from liens and encumbrances other than statutory liens and those recorded in the certificate of title. There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not acquire the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must remain subordinate to the latter.
We are understandably loath (absent a clear precept of law so commanding) to adopt a rule that would undermine the faith and credit to be accorded to registered Torrens titles and nullify the beneficient objectives sought to be obtained by the Land Registration Act. No argument is needed to stress that if a person dealing with registered land were to be held to take it in every instance subject to all the fourteen preferred claims enumerate in Article 2242 of the new Civil Code, even if the existence and import thereof can not be ascertained from the records, all confidence in Torrens titles would be destroyed, and credit transactions on the faith of such titles would be hampered, if not prevented, with incalculable results. Loans on real estate security would become aleatory and risky transactions, for no prospective lender could accurately estimate the hidden liens on the property offered as security, unless he indulged in complicated, tedious investigations. The logical result might well be contraction of credit to unforeseable proportions that could lead to economic disaster. lawphil.net
Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims to be recorded in the books of the Register of Deeds should they desire to protect their rights even outside of insolvency or liquidation proceedings.
B. The close study of the facts disclosed by the records casts strong doubt on the proposition that appelle Cruzados should be regarded as unpaid vendors of the property (land, buildings, and improvements) involved in the case at bar so as to be entitled to preference under Article 2242. The record on appeal, specially the final decision of the Court of First Instance of Manila in the suit of the Cruzados against Villanueva, clearly establishes that after her husband's death, and with due court authority, Rosario Cruzado, for herself and as administratrix of her husband's estate, mortgaged the property to the Rehabilitation Finance Corporation (RFC) to secure repayment of a loan of P11,000, in installments, but that the debtor failed to pay some of the installment wherefore the RFC, on 24 August 1949, foreclosed the mortgage, and acquired the property, subject to the debtors right to redeem or repurchase the said property; and that on 25 September 1950, the RFC consolidated its ownership, and the certificate of title of the Cruzados was cancelled and a new certificate issued in the name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile mortgagors and former owners Cruzados in installments, subject to the condition (among others) that the title to the property and its improvements "shall remain in the name of the Corporation (RFC) until after said purchase price, advances and interest shall have been fully paid", as of 27 September 1952, Cruzado had only paid a total of P1,360, and had defaulted on six monthly amortizations; for which reason the RFC rescinded the sale, and forfeited the payments made, in accordance with the terms of the contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title, interest and dominion on and over" the property, lot, house, and improvements for P19,000.00, the buyer undertaking to assume payment of the obligation to the RFC, and by resolution of 30 April 1953, the RFC approved "the transfer of the rights and interests of Rosario P. Cruzado and her children in their property herein above-described in favor of Pura L. Villanueva"; and on 7 May 1953 the RFC executed a deed of absolute sale of the property to said party, who had fully paid the price
of P14,269.03. Thereupon, the spouses Villanueva obtained a new Transfer Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants herein.
It is clear from the facts above-stated that ownership of the property had passed to the Rehabilitation Finance Corporation since 1950, when it consolidated its purchase at the foreclosure sale and obtained a certificate of title in its corporate name. The subsequent contract of resale in favor of the Cruzados did not revest ownership in them, since they failed to comply with its terms and conditions, and the contract itself provided that the title should remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale contract with the RFC the appellant Cruzados sold to Villanueva "their rights, title, interest and dominion" to the property, they merely assign whatever rights or claims they might still have thereto; the ownership of the property rested with the RFC. The sale from Cruzado to Villanueva, therefore, was not much a sale of the land and its improvements as it was a quitclaim deed in favor of Villanueva. In law, operative sale was that from the RFC to the latter, and it was the RFC that should be regarded as the true vendor of the property. At the most, the Cruzados transferred to Villanueva an option to acquire the property, but not the property itself, and their credit, therefore, can not legally constitute a vendor's lien on the corpus of the property that should stand on an equal footing with mortgaged credit held by appellants Barretto.
IN VIEW OF THE FOREGOING, the previous decision of this Court, promulgated on 28 January 1961, is hereby reconsidered and set aside, and a new one entered reverse the judgment appealed from and declaring the appellant Barrettos entitled to full satisfaction of their mortgage credit out of the proceeds of the foreclosure sale in the hands of the Sheriff of the City of Manila. No costs.
[G.R. No. 105827. January 31, 2000]
J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact Santiago R. Sugay, Edwin A. Sugay and Fernando S.A. Erana, SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S. A. ERANA, petitioners, vs. COURT OF APPEALS and MAYOR JOSE L. SALONGA, respondents.
D E C I S I O N
GONZAGA-REYES, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside the following:
1. Decision dated February 6, 1992 issued by the Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 which nullified the order of the Regional Trial Court of Cabanatuan City in Civil Case No. 1016-AF granting plaintiffs (petitioners herein) a writ of attachment and a contractor’s lien upon the San Antonio Public Market; and
2. Resolution dated June 10, 1992 issued by the former Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 denying the motions for reconsideration filed by both parties.
The factual antecedents of this case, as culled from the pleadings, are as follows:
Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the construction of the San Antonio Public Market. The construction of the market was to be funded by the Economic Support Fund Secretariat (ESFS), a government agency working with the USAID. Under ESFS’ "grant-loan-equity" financing program, the funding for the market would be composed of a (a) grant from ESFS, (b) loan extended by ESFS to the Municipality of San Antonio, and (c) equity or counterpart funds from the Municipality.
It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L. Bernardo Construction, a single proprietorship owned by Juanito L. Bernardo, that they entered into a business venture for the purpose of participating in the bidding for the public market. It was agreed by petitioners that Santiago Sugay would take the lead role and be responsible for the preparation and submission of the bid documents, financing the entire project, providing and utilizing his own equipment, providing the necessary labor, supplies and materials and making the
necessary representations and doing the liaison work with the concerned government agencies.
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted its bid together with other qualified bidders. After evaluating the bids, the municipal pre-qualification bids and awards committee, headed by respondent Jose L. Salonga (then incumbent municipal mayor of San Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, a Construction Agreement was entered into by the Municipality of San Antonio thru respondent Salonga and petitioner J.L. Bernardo Construction.
It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to assume the expenses for the demolition, clearing and site filling of the construction site in the amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted directly to petitioners.
Petitioners allege that, although the whole amount of the cash equity became due, the Municipality refused to pay the same, despite repeated demands and notwithstanding that the public market was more than ninety-eight percent (98%) complete as of July 20, 1991. Furthermore, petitioners maintain that Salonga induced them to advance the expenses for the demolition, clearing and site filling work by making representations that the Municipality had the financial capability to reimburse them later on. However, petitioners claim that they have not been reimbursed for their expenses.[1]
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and Fernando Erana, with the latter three bringing the case in their own personal capacities and also in representation of J.L. Bernardo Construction, filed a complaint for breach of contract, specific performance, and collection of a sum of money, with prayer for preliminary attachment and enforcement of contractor’s lien against the Municipality of San Antonio, Nueva Ecija and Salonga, in his personal and official capacity as municipal mayor. After defendants filed their answer, the Regional Trial Court held hearings on the ancillary remedies prayed for by plaintiffs.[2]
On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment prayed for by plaintiffs. It also granted J.L. Bernardo Construction the right to maintain possession of the public market and to operate the same. The dispositive portion of the decision provides:
IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary reliefs of attachment prayed for by the plaintiffs to be well-taken and the same is hereby GRANTED. Conformably thereto, let a writ of preliminary attachment be issued upon the filing by the plaintiffs
of a bond in the amount of P2,653,576.84 to answer for costs and damages which the defendants may suffer should the Court finally adjudged (sic) that the plaintiffs are not entitled to the said attachment, and thereafter, the Deputy Sheriff of this court is hereby ordered to attach the properties of the defendants JOSE LAPUZ SALONGA and the MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA which are not exempt from execution.
CORROLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION, represented by SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S.A. ERANA, the authority to hold on to the possession of the public market in question and to open and operate the same based on fair and reasonable guidelines and other mechanics of operation to be submitted by plaintiffs within fifteen (15) days from their receipt of this Order which shall be subject to Court’s approval and to deposit the income they may derive therefrom to the Provincial Treasurer of Nueva Ecija after deducting the necessary expenses for the operation and management of said market, subject to further orders from this Court.
SO ORDERED.
The trial court gave credence to plaintiffs’ claims that defendants were guilty of fraud in incurring their contractual obligations as evidenced by the complaint and the affidavits of plaintiffs Santiago Sugay and Erana. The court ruled that defendants’ acts of "…obtaining property, credit or services by false representations as to material facts made by the defendant to the plaintiff with intent to deceive constitutes fraud warranting attachment" and that "… a debt is considered fradulently contracted if at the time of contracting it, the debtor entertained an intention not to pay."
With regards to the contractor’s lien, the trial court held that since plaintiffs have not been reimbursed for the cash equity and for the demolition, clearing and site filling expenses, they stand in the position of an unpaid contractor and as such are entitled, pursuant to articles 2242 and 2243 of the Civil Code, to a lien in the amount of P2,653,576.84 (as of August 1, 1991), excluding the other claimed damages, attorney’s fees and litigation expenses, upon the public market which they constructed. It was explained that, although the usual way of enforcing a lien is by a decree for the sale of the property and the application of the proceeds to the payment of the debt secured by it, it is more practical and reasonable to permit plaintiffs to operate the public market and to apply to their claims the income derived therefrom, in the form of rentals and goodwill from the prospective stallholders of the market, as prayed for by plaintiffs.
The trial court made short shrift of defendants’ argument that the case was not instituted in the name of the real parties-in-interest. It explained that the plaintiff in the cause of action for money claims for unpaid cash equity and demolition and site filling expenses is J.L. Bernardo Construction, while the plaintiffs in the claim for damages for violation of their rights under the Civil Code provisions on human relations are plaintiffs Santiago Sugay, Edwin Sugay and Erana.[3]
The defendants moved for reconsideration of the trial court’s order, to which the plaintiffs filed an opposition. On October 10, 1991 the motion was denied. The following day, the trial court approved the guidelines for the operation of the San Antonio Public Market filed by plaintiffs.
Respondent Salonga filed a motion for the approval of his counterbond which was treated by the trial court in its October 29, 1991 order as a motion to fix counterbond and for which it scheduled a hearing on November 19, 1991.
On October 21, 1991, during the pendency of his motion, respondent Salonga filed with the Court of Appeals a petition for certiorari under Rule 65 with prayer for a writ of preliminary injunction and temporary restraining order which case was docketed as CA-G.R. SP No. 26336.[4] Petitioners opposed the petition, claming that respondent had in fact a plain, speedy and adequate remedy as evidenced by the filing of a motion to approve counter-bond with the trial court.[5]
On February 6, 1992, the Court of Appeals reversed the trial court’s decision and ruled in favor of Salonga. The dispositive portion of its decision states –
FOR ALL THE FOREGOING, the petition is hereby granted as follows:
1. The respondent judge’s ORDER dated September 5, 1991 for the issuance of a writ of attachment and for the enforcement of a contractor’s lien, is hereby NULLIFIED and SET ASIDE; the writ of attachment issued pursuant thereto and the proceedings conducted by the Sheriffs assigned to implement the same are, as a consequence, also hereby NULLIFIED and SET ASIDE;
2. The respondent judge’s ORDER dated October 11, 1991 further enforcing the contractor’s lien and approving the guidelines for the operation of the San Antonio Public Market is also NULLIFIED and SET ASIDE.
Petitioner’s prayers for the dismissal of Civil Case No. 1016 (now pending before respondent judge) and for his deletion from said case as defendant in his private capacity are, however, DENIED.
The respondent judge may now proceed to hearing of Civil Case No. 1016 on the merits.
SO ORDERED.
The appellate court reasoned that since the Construction Agreement was only between Juanito Bernardo and the Municipality of San Antonio, and since there is no sworn statement by Juanito Bernardo alleging that he had been deceived or misled by Mayor Salonga or the Municipality of San Antonio, it is apparent that the applicant has not proven that the defendants are guilty of inceptive fraud in contracting the debt or incurring the obligation, pursuant to Rule 57 of the Rules of Court, and therefore, the writ of attachment should be struck down for having been improvidently and irregularly issued.
The filing of a motion for the approval of counter-bond by defendants did not, according to the Court of Appeals, render the petition for certiorari premature. The appellate court held that such motion could not cure the defect in the issuance of the writ of attachment and that, moreover, the defendants’ motion was filed by them "without prejudice to the petition for certiorari."
As to the contractor’s lien, the appellate court ruled that Articles 2242 of the Civil Code finds application only in the context of insolvency proceedings, as expressly stated in Article 2243. Even if it is conceded that plaintiffs are entitled to retain possession of the market under its contractor’s lien, the appellate court held that the same right cannot be expanded to include the right to use the building. Therefore, the trial court’s grant of authority to plaintiffs to operate the San Antonio Public Market amounts to a grave abuse of discretion.
With regard to the allegations of defendants that plaintiffs are not the proper parties, the Court of Appeals ruled that such issue should be assigned as an error by defendants later on should the outcome of the case be adverse to the latter.[6]
Petitioners are now before this Court assailing the appellate court’s decision. In their petition, they make the following assignment of errors:
1. THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS OVERLOOKED AND/OR DISREGARDED THE FUNDAMENTAL
REQUIREMENT AND ESTABLISHED SUPREME COURT DECISIONS IN ACTIONS FOR CERTIORARI CONSIDERING THAT THE FILING OF THE PETITION BY RESPONDENT SALONGA WITH THE COURT OF APPEALS IS OBVIOUSLY PREMATURE AND IMPROPER SINCE THERE ADMITTEDLY EXISTS A PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO RESPONDENT SALONGA WHICH IS HIS UNRESOLVED "MOTION TO APPROVE COUNTERBOND" PENDING WITH THE TRIAL COURT.
2. IN COMPLETE DISREGARD OF ESTABLISHED JURISPRUDENCE, THE COURT OF APPEALS HAS SKIRTED AND/OR FAILED TO CONSIDER/DISREGARDED THE EQUALLY CRUCIAL ISSUE THAT THE QUESTIONED ORDERS ARE CLEARLY AND ADMITTEDLY INTERLOCUTORY IN NATURE AND THEREFORE THEY CANNOT BE THE PROPER SUBJECT OF AN ACTION FOR CERTIORARI; PROOF THAT THE ORDERS ASSAILED BY RESPONDENT SALONGA ARE INTERLOCUTORY IN CHARACTER IS THE DISPOSITIVE PORTION OF THE DECISION WHEN THE COURT OF APPEALS SAID "THE RESPONDENT JUDGE MAY NOW PROCEED TO HEARING OF SAID CIVIL CASE NO. 1016 ON THE MERITS"; PETITION FILED BY RESPONDENT SALONGA WITH THE COURT OF APPEALS SHOULD HAVE BEEN DISMISSED OUTRIGHTLY AS SOUGHT BY HEREIN PETITIONERS IN THEIR VARIOUS UNACTED PLEADINGS.
3. THE DECISION IS BASED ON FINDINGS OF FACTS AND CONCLUSIONS WHICH ARE NOT ONLY GROSSLY ERRONEOUS BUT ARE SQUARELY CONTRADICTED BY THE EVIDENCE ON RECORD.
4. THE COURT OF APPEALS HAS CLEARLY MISAPPRECIATED, MISREAD AND DISREGARDED HEREIN PETITIONERS’ CAUSES OF ACTION AGAINST RESPONDENT SALONGA AND HIS CO-RESPONDENT MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA.
5. THE COURT OF APPEALS HAS MADE ERRONEOUS AND CONTRADICTORY CONCLUSIONS AND FINDINGS ON THE ISSUE OF "REAL PARTY IN INTEREST" IN COMPLETE DISREGARD OF THE POWERS AND AUTHORITY GRANTED BY JUANITO L. BERNARDO CONSTRUCTION TO HEREIN PETITIONERS.
6. THE COURT OF APPEALS HAS SKIRTED THE IMPORTANT ISSUE OF "AGENCY COUPLED WITH AN INTEREST."
7. THE COURT OF APPEALS WENT BEYOND THE ISSUES OF THE CERTIORARI CASE AND ITS FINDINGS AND CONCLUSIONS ON ISSUES
NOT RELATED TO THE CASE FOR CERTIORARI ARE CONTRARY TO THE PLEADINGS AND DO NOT CONFORM TO THE EVIDENCE ON RECORD.
8. THE COURT OF APPEALS HAS LIKEWISE DISREGARDED THE PRECEPT THAT CONCLUSIONS AND FINDINGS OF FACT OF THE TRIAL COURT ARE ENTITLED TO GREAT WEIGHT ON APPEAL AND SHOULD NOT BE DISTURBED SINCE THERE IS NO STRONG AND COGENT REASON WHATSOVER TO OVERCOME THE WELL-WRITTEN AND DETAILED AND ESTABLISHED FACTUAL FINDINGS OF THE TRIAL COURT.
9. PETITIONERS HAVE STRONG REASONS TO BELIEVE THAT THE DECISION OF THE COURT OF APPEALS WAS ISSUED WITH SERIOUS INJUSTICE AND AGAINST THE TENETS OF FAIR PLAY SINCE THE DECISION HAD BEEN KNOWN TO AS IT WAS OPENLY AND PUBLICLY ANNOUNCED BY RESPONDENT SALONGA LONG BEFORE IT WAS "PROMULGATED" BY THE COURT OF APPEALS.
The various issues raised by petitioners may be restated in a more summary manner as -
1. Whether or not the Court of Appeals correctly assumed jurisdiction over the petition for certiorari filed by respondents herein assailing the trial court’s interlocutory orders granting the writ of attachment and the contractor’s lien?
2. Whether or not the Court of Appeals committed reversible errors of law in its decision?
A petition for certiorari may be filed in case a tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law.[7]
The office of a writ of certiorari is restricted to truly extraordinary cases wherein the act of the lower court or quasi-judicial body is wholly void.[8] We held in a recent case that certiorari may be issued "only where it is clearly shown that there is a patent and gross abuse of discretion as to amount to an evasion of positive duty or to virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion or personal hostility."[9]
As a general rule, an interlocutory order is not appealable until after the rendition of the judgment on the merits for a contrary rule would delay the administration of
justice and unduly burden the courts.[10] However, we have held that certiorari is an appropriate remedy to assail an interlocutory order (1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of discretion and (2) when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief.[11]
We hold that the petition for certiorari filed by Salonga and the Municipality with the Court of Appeals questioning the writ of attachment issued by the trial court should not have been given due course for they still had recourse to a plain, speedy and adequate remedy - the filing of a motion to fix the counter-bond, which they in fact filed with the trial court, the grant of which would effectively prevent the issuance of the writ of attachment. Moreover, they could also have filed a motion to discharge the attachment for having been improperly or irregularly issued or enforced, or that the bond is insufficient, or that the attachment is excessive.[12] With such remedies still available to the Municipality and Salonga, the filing of a petition for certiorari with the Court of Appeals insofar as it questions the order of attachment was clearly premature.
However, with regards to the contractor’s lien, we uphold the appellate court’s ruling reversing the trial court’s grant of a contractor’s lien in favor of petitioners.
Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific personal or real property of the debtor. Specifically, the contractor’s lien claimed by petitioners is granted under the third paragraph of Article 2242 which provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or other immovable property constructed.[13]
However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead of the others.[14] Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency proceedings.[15]
This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be considered as mortgages or pledges of
real or personal property, or liens within the purview of legal provisions governing insolvency.[16]
The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. It is basically for specific performance and damages.[17] Thus, even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke the contractor’s lien granted under Article 2242, such lien cannot be enforced in the present action for there is no way of determining whether or not there exist other preferred creditors with claims over the San Antonio Public Market. The records do not contain any allegation that petitioners are the only creditors with respect to such property. The fact that no third party claims have been filed in the trial court will not bar other creditors from subsequently bringing actions and claiming that they also have preferred liens against the property involved.[18]
Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin,[19] wherein we also disallowed the contractor from enforcing his lien pursuant to Article 2242 of the Civil Code in an action filed by him for the collection of unpaid construction costs.
It not having been alleged in their pleadings that they have any rights as a mortgagee under the contracts, petitioners may only obtain possession and use of the public market by means of a preliminary attachment upon such property, in the event that they obtain a favorable judgment in the trial court. Under our rules of procedure, a writ of attachment over registered real property is enforced by the sheriff by filing with the registry of deeds a copy of the order of attachment, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any.[20] If judgment be recovered by the attaching party and execution issue thereon, the sheriff may cause the judgment to be satisfied by selling so much of the property as may be necessary to satisfy the judgment.[21] Only in the event that petitioners are able to purchase the property will they then acquire possession and use of the same.
Clearly, the trial court’s order of September 5, 1991 granting possession and use of the public market to petitioners does not adhere to the procedure for attachment laid out in the Rules of Court. In issuing such an order, the trial court gravely abused its discretion and the appellate court’s nullification of the same should be sustained.
At this stage of the case, there is no need to pass upon the question of whether or not petitioners herein are the real parties-in-interest. In the event that judgment is rendered against Salonga and the Municipality, this issue may be assigned as an error in their appeal from such judgment.
WHEREFORE, we UPHOLD the Court of Appeal’s Decision dated February 6, 1992 in CA-G.R. SP No. 26336 insofar as it nullifies the contractor’s lien granted by the trial court in favor of petitioners in its September 5, 1991 Order. Consequently, we also UPHOLD the appellate court’s nullification of the trial court’s October 11, 1991 Order approving the guidelines for the operation of the San Antonio Public Market. However, we REVERSE the appellate court’s order nullifying the writ of attachment granted by the trial court.
No pronouncement as to costs.
SO ORDERED.
JOSE C. CORDOVA, G.R. No. 146555Petitioner,
Present:
PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ,*
- v e r s u s - CORONA, AZCUNA and
GARCIA, JJ. **
REYES DAWAY LIM BERNARDOLINDO ROSALES LAW OFFICES,ATTY. WENDELL CORONEL andthe SECURITIES AND EXCHANGECOMMISSION,***
Respondents. Promulgated: July 3, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I O N
CORONA, J.:
This is a petition for review on certiorari[1] of a decision[2] and resolution[3] of
the Court of Appeals (CA) dated July 31, 2000 and December 27, 2000,
respectively, in CA-G.R. SP No. 55311.
Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from
Philippine Underwriters Finance Corporation (Philfinance) certificates of stock of
Celebrity Sports Plaza Incorporated (CSPI) and shares of stock of various
other corporations. He was issued a confirmation of sale.[4] The CSPI shares were
physically delivered by Philfinance to the former Filmanbank[5] and Philtrust Bank,
as custodian banks, to hold these shares in behalf of and for the benefit of
petitioner.[6]
On June 18, 1981, Philfinance was placed under receivership by public
respondent Securities and Exchange Commission (SEC). Thereafter, private
respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty.
Wendell Coronel (private respondents) were appointed as liquidators.[7] Sometime
in 1991, without the knowledge and consent of petitioner and without authority
from the SEC, private respondents withdrew the CSPI shares from the custodian
banks.[8] On May 27, 1996, they sold the shares to Northeast Corporation and
included the proceeds thereof in the funds of Philfinance. Petitioner learned about
the unauthorized sale of his shares only on September 10, 1996.[9] He lodged a
complaint with private respondents but the latter ignored it[10] prompting him to
file, on May 6, 1997,[11] a formal complaint against private respondents in the
receivership proceedings with the SEC, for the return of the shares.
Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for
Philfinance’s creditors and investors.[12] On May 13, 1997, the liquidators began
the process of settling the claims against Philfinance, from its assets.[13]
On April 14, 1998, the SEC rendered judgment dismissing the petition.
However, it reconsidered this decision in a resolution dated September 24, 1999
and granted the claims of petitioner. It held that petitioner was the owner of the
CSPI shares by virtue of a confirmation of sale (which was considered as a deed of
assignment) issued to him by Philfinance. But since the shares had already been
sold and the proceeds commingled with the other assets of Philfinance, petitioner’s
status was converted into that of an ordinary creditor for the value of such shares.
Thus, it ordered private respondents to pay petitioner the amount of P5,062,500
representing 15% of the monetary value of his CSPI shares plus interest at the legal
rate from the time of their unauthorized sale.
On October 27, 1999, the SEC issued an order clarifying its September 24,
1999 resolution. While it reiterated its earlier order to pay petitioner the amount
of P5,062,500, it deleted the award of legal interest. It clarified that it never meant
to award interest since this would be unfair to the other claimants.
On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed
the owner of the CSPI shares but the recovery of such shares had become
impossible. It also declared that the clarificatory order merely harmonized the
dispositive portion with the body of the resolution. Petitioner’s motion for
reconsideration was denied.
Hence this petition raising the following issues:
1) whether petitioner should be considered as a preferred (and secured)
creditor of Philfinance;
2) whether petitioner can recover the full value of his CSPI shares or
merely 15% thereof like all other ordinary creditors of Philfinance and
3) whether petitioner is entitled to legal interest.[14]
To resolve these issues, we first have to determine if petitioner was indeed a
creditor of Philfinance.
There is no dispute that petitioner was the owner of the CSPI
shares. However, private respondents, as liquidators of Philfinance, illegally
withdrew said certificates of stock without the knowledge and consent of petitioner
and authority of the SEC.[15] After selling the CSPI shares, private respondents
added the proceeds of the sale to the assets of Philfinance.[16] Under these
circumstances, did the petitioner become a creditor of Philfinance? We rule in the
affirmative.
The SEC, after holding that petitioner was the owner of the shares, stated: Petitioner is seeking the return of his CSPI shares which, for the present, is no longer possible, considering that the same had already been sold by the respondents, the proceeds of which are ADMITTEDLY commingled with the assets of PHILFINANCE. This being the case, [petitioner] is now but a claimant for the value of those shares. As a claimant, he shall be treated as an ordinary creditor in so far as the value of those certificates is concerned.[17]
The CA agreed with this and elaborated: Much as we find both detestable and reprehensible the grossly abusive and
illicit contrivance employed by private respondents against petitioner, we, nevertheless, concur with public respondent that the return of petitioner’s CSPI shares is well-nigh impossible, if not already an utter impossibility, inasmuch as the certificates of stocks have already been alienated or transferred in favor of Northeast Corporation, as early as May 27, 1996, in consequence whereof the proceeds of the sale have been transmuted into corporate assets of Philfinance, under custodia legis, ready for distribution to its creditors and/or investors. Case law holds that the assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver or liquidator, and shall from the moment of such receivership or liquidation, be exempt from any order, garnishment, levy, attachment, or execution.
Concomitantly, petitioner’s filing of his claim over the subject CSPI
shares before the SEC in the liquidation proceedings bound him to the terms and
conditions thereof. He cannot demand any special treatment [from] the liquidator, for this flies in the face of, and will contravene, the Supreme Court dictum that when a corporation threatened by bankruptcy is taken over by a receiver, all the creditors shall stand on equal footing. Not one of them should be given preference by paying one or some [of] them ahead of the others. This is precisely the philosophy underlying the suspension of all pending claims against the corporation under receivership. The rule of thumb is equality in equity.[18]
We agree with both the SEC and the CA that petitioner had become an
ordinary creditor of Philfinance.
Certainly, petitioner had the right to demand the return of his CSPI shares.
[19] He in fact filed a complaint in the liquidation proceedings in the SEC to get
them back but was confronted by an impossible situation as they had already been
sold. Consequently, he sought instead to recover their monetary value.
Petitioner’s CSPI shares were specific or determinate movable properties.
[20] But after they were sold, the money raised from the sale became generic[21] and
were commingled with the cash and other assets of Philfinance. Unlike shares of
stock, money is a generic thing. It is designated merely by its class or genus
without any particular designation or physical segregation from all others of the
same class.[22] This means that once a certain amount is added to the cash balance,
one can no longer pinpoint the specific amount included which then becomes part
of a whole mass of money.
It thus became impossible to identify the exact proceeds of the sale of the
CSPI shares since they could no longer be particularly designated nor distinctly
segregated from the assets of Philfinance. Petitioner’s only remedy was to file a
claim on the whole mass of these assets, to which unfortunately all of the other
creditors and investors of Philfinance also had a claim.
Petitioner’s right of action against Philfinance was a “claim” properly to be
litigated in the liquidation proceedings.[23] InFinasia Investments and Finance
Corporation v. CA,[24] we discussed the definition of “claims” in the context of
liquidation proceedings: We agree with the public respondent that the word ‘claim’ as used
in Sec. 6(c) of P.D. 902-A,[25] as amended, refers to debts or demands of a pecuniary nature. It means "the assertion of a right to have money paid. It is used in special proceedings like those before [the administrative court] on insolvency."
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured.[26]
Undoubtedly, petitioner had a right to the payment of the value of his
shares. His demand was of a pecuniary nature since he was claiming the monetary
value of his shares. It was in this sense (i.e. as a claimant) that he was a creditor of
Philfinance.
The Civil Code provisions on concurrence and preference of credits are
applicable to the liquidation proceedings.[27] The next question is, was petitioner a
preferred or ordinary creditor under these provisions?
Petitioner argues that he was a preferred creditor because private
respondents illegally withdrew his CSPI shares from the custodian banks and sold
them without his knowledge and consent and without authority from the SEC. He
quotes Article 2241 (2) of the Civil Code: With reference to specific movable property of the debtor, the following claims or liens shall be preferred: xxx xxx xxx (2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the movables, money or securities obtained by them;
xxx xxx xxx
(Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary value
of his shares.
Petitioner’s argument is incorrect. Article 2241 refers only to specific
movable property. His claim was for the payment of money, which, as already
discussed, is generic property and not specific or determinate.
Considering that petitioner did not fall under any of the provisions
applicable to preferred creditors, he was deemed an ordinary creditor under Article
2245: Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that: Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.
Like all the other ordinary creditors or claimants against Philfinance, he was
entitled to a rate of recovery of only 15% of his money claim.
One final issue: was petitioner entitled to interest?
The SEC argues that awarding interest to petitioner would have given
petitioner an unfair advantage or preference over the other creditors.[28] Petitioner
counters that he was entitled to 12% legal interest per annum under Article 2209 of
the Civil Code from the time he was deprived of the shares until fully paid.
The guidelines for awarding interest were laid down in Eastern Shipping
Lines, Inc. v. CA:[29]
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.[30] (Emphasis supplied)
Under this ruling, petitioner was not entitled to legal interest of 12% per
annum (from demand) because the amount owing to him was not a loan [31] or
forbearance of money.[32]
Neither was he entitled to legal interest of 6% per annum under Article 2209
of the Civil Code[33] since this provision applies only when there is a delay in the
payment of a sum of money.[34] This was not the case here. In fact, petitioner
himself manifested before the CA that the SEC (as liquidator) had already paid
him P5,062,500 representing 15% of P33,750,000.[35]
Accordingly, petitioner was not entitled to interest under the law and current
jurisprudence.
Considering that petitioner had already received the amount of P5,062,500,
the obligation of the SEC as liquidator of Philfinance was totally extinguished.[36]
We note that there is an undisputed finding by the SEC and CA that private
respondents sold the subject shares without authority from the SEC. Petitioner
evidently has a cause of action against private respondents for their bad faith and
unauthorized acts, and the resulting damage caused to him.[37]
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.
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